Morning Market Update April 18: Is It Too Soon To Call It A Floor?

Gold, silver and oil all saw a sharp hit in Asian trading overnight, but the physical buyers immediately jumped in. By midday in European trading, all three commodities had completely recovered and were above Wednesday’s New York close. The dollar is weaker today on profit taking after its jump yesterday. The lower dollar and higher oil prices are positives for precious metals.

Stocks in Europe as well as the euro currency saw a slight improvement. The euro had dropped yesterday on an ECB official’s hint that interest rates could be cut.  A favorable response to the most recent Spanish bond sale also helped settle sentiment.

In Asia, the Nikkei was down on news that there was a backlog of iphone and ipad parts at suppliers to Apple as sales weakened for the iconic tech gadgets. Combined with a fall in banking stocks, this drove the Nikkei down 1.2%. Hong Kong stocks saw a fifth day of losses, but mainland Chinese stocks saw a slight gain on appreciating home prices.

In the U.S., stocks had been expected to open higher on better than expected earnings reports from PepsiCo, Morgan Stanley and Verizon, but disappointing earnings from Ebay and United Healthcare, as well as worse than expected economic data, drove stocks into negative territory immediately after the opening bell. The S&P 500 was at a one-month low in morning trading.

First time jobless claims were barely worse than expected, rising 4,000 to 352,000. This was above expectations of 346,000. The four-week rolling average of first-time jobless claims rose 2,750 to 361,250, the highest level in two months.  Continuing claims dropped 35,000 to 3.07 million.

Experts has expected today’s Philadelphia Federal Reserve report on business activity to rise to 3.0 from last month’s 2.0, but it dropped to 1.3 instead, rattling the stock market. The Conference Board’s index of leading economic indicators was expected to rise 0.1%, but fell but 0.1% instead.

Physical gold and silver demand is still at eye-popping levels worldwide. The Treasurer of Australia’s Perth Mint, the nation’s largest gold refiner, said people were literally “running through the gate” onto Mint grounds to buy gold. We are now hearing this morning that some funds may be starting to dip their toes back into gold.  Sharps Pixley reports that physical gold demand is gathering momentum, with major gold refiners reporting that the inventory of small gold bars as been completely wiped out. It is estimated that it may take 4 – 6 weeks for refiners make more, leaving distributors and buyers waiting.

This unmet physical demand for gold and silver is driving premiums up, and may be already supporting spot prices in the face to reduced paper plays. Spot prices for gold are ranging between $1,380 and $1,400 for the third day in New York trading, and silver is on a third day between $23.20 and $23.60.

The fundamentals of the market have not changed since before Friday’s drop, and paper panic selling has begotten a physical frenzy of buying. Supply will remain tight to non-existent while mints, mines, and refineries struggle to meet the sudden demand. Prices should rise to meet demand in order to coax stock into the market. We may see consolidation through this week, though it is encouraging to see the market immediately correct any sudden drops, mostly on physical demand. It is too soon to expect the market to show a definite direction either way.

by David Peterson

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